PROFIT-AND-LOSS SHARING FINANCING, OPERATING EXPENSES, AND THE INTERMEDIATION COSTS OF ISLAMIC RURAL BANKS IN INDONESIA

  • Fahmia Robiatun NB Universitas Gadjah Mada, Indonesia
  • Akhmad Akbar Susamto Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada, Indonesia
  • Samsubar Saleh Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada, Indonesia

Abstract

This paper examines the effect of profit-and-loss sharing financing (PLS financing) and operating expenses on the intermediation costs of Islamic rural banks in Indonesia.  Using a panel dataset of 147 Islamic rural banks over the period 2011-2021 and dynamic panel regressions, it shows that, in general, PLS financing exerts no significant influence on the Islamic rural banks’ intermediation costs, as measured by the net margin. Meanwhile, the operating expenses are significantly and positively affecting the banks’ net margin, the result that is robust to different regression specifications. Accordingly, the initiatives to promote PLS financing will, at least, not necessarily have a detrimental effect on the net margin. Operating expenses matter more, underscoring the need for serious efforts to improve the effectiveness of Islamic local banks’ cost management.

Keywords: Net margin, PLS financing, Operating expenses, Islamic bank, BPRs.

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Published
2024-05-31
How to Cite
Robiatun NB, F., Susamto, A. A., & Saleh, S. (2024). PROFIT-AND-LOSS SHARING FINANCING, OPERATING EXPENSES, AND THE INTERMEDIATION COSTS OF ISLAMIC RURAL BANKS IN INDONESIA. Journal of Islamic Monetary Economics and Finance, 10(2), 379-396. https://doi.org/10.21098/jimf.v10i2.1914
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Articles